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Accounting Firms Recommend Different Business Valuation Methods

CPA Long Island

Business valuation is a process that lets you know how much money your enterprise is worth. You will want to do this for a variety of reasons. It helps set a reasonable asking price if you decide to sell or liquidate your business. Also, you may also use that valuation to establish equity if you require financing. Today, we’ll briefly go over different types of valuation methods.

First, don’t do the valuation yourself–this process requires objectivity and distance to determine your business’s true value. Your accounting firm in Long Island, NY, can direct you where you may go to get this service, such as to an appraiser or a Chartered Business Valuator. The approaches they use include:

Asset-Based: Useful for data collection and liquidation, this approach adds up all the investments and assets in a business to determine its worth. Asset-based approaches are beneficial to sellers who intend to be paid upfront at the conclusion of the transaction.

Earning Value: This approach assumes that the worth of a business is in its ability to produce wealth in the future. The valuator will calculate the business’s potential to generate revenue based on its past performance. The Earning Value approach is ideal for investors seeking to find a rate of return on their investment.

Market Value: The Market Value approach determines the value of the business based on the value of similar businesses that have recently sold. This approach is only effective if a sufficient amount of similar businesses are available to compare.

The method of valuation you choose may depend on your investment goals. If valuation is in your organization’s future, be sure to get insight from a trusted accounting firm.